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A New Source of Director Liability

"In a recent decision of the Supreme Court of Queensland, an often overlooked section of the Corporations Act (the “Act”) was invoked by a plaintiff to make a director personally liable for the indebtedness of a company. The case is extraordinary because, by invoking section 1324 of the Act, creditors and shareholders - people to whom company directors owe no legal duties - now appear to be able to seek and obtain an order for damages against a company director".

Under section 1324 of the Act a court can, where a director has contravened (or is about to contravene) the Act, and on the application of a person affected by the conduct of a director, either:

grant an injunction to prevent a director from contravening the Act; and/or

order a director to pay damages to any other person.

Former rugby league player Jarrod McCracken was a director of a property development company. His company was a defendant in litigation involving the alleged breach of a development contract. The plaintiff in those proceedings succeeded in obtaining an award of $1.5 million damages plus interest against McCracken. In McCracken's case, the Court invoked section 1324 and ordered him personally to pay damages to the plaintiff (a creditor of his company) for a breach of directors duties owed to his company.

Prior to this decision, it was considered ‘settled law’ that company directors did not owe any duties to creditors of companies. Even in cases where directors are held personally liable for the insolvent trading of their company, such proceedings are usually initiated and maintained by a liquidator. Unsecured creditors have not had any legal interest in the company's assets and they did not have a right to bring proceedings against directors for their management of the company. The Court's use of section 1324 creates considerable uncertainty about these established principles.

The decision also has ramifications for another class of people previously thought not to be owed any duties by company directors – shareholders. Shareholders have not traditionally been able to recover damages directly from directors for breaches of duties owed to companies. This principle also now seems to be uncertain. An appeal of the McCracken decision has been lodged. If the original judgment stands, the ramifications for companies extend beyond the legal liabilities of directors because directors who suffer an judgment to pay damages to company creditors, shareholders or other third parties for a breach of statutory directors’ duties may not be covered by their Directors & Officers insurance policy: section 199B of the Act makes it illegal for companies to pay Directors & Officers insurance premiums to cover liabilities arising from, amongst other things, wilful breaches of duty owed by a director to the company. Invariably, all Directors & Officers insurance policies exclude such liabilities.

While an individual is free to leave their property as they see fit upon their death, Chapter 3 of the Succession Act 2006 (NSW) (‘the Act’) places a significant restriction on a testator’s testamentary freedom. read more

Bad news for Developers and for home-buyers

The decision in Botany Bay City Council v Botany Development Pty Ltd (No 2) [2015] NSWLEC 55
On 9 April 2015, the Land and Environment Court of New South Wales handed down a decision which has negative implications for both developers and home buyers and which will potentially impact residential development projects across all of NSW.read more

Enduring Powers of Attorney in NSW

What is a Power of Attorney?
A power of attorney is a document empowering a person (or persons)(“the attorney”) to act on behalf of another person (“the principal”) with respect to the principal’s assets, debts and financial affairs. Powers of attorney can be:
read more

The High Court’s unfortunate analysis in Clark V Macourt

Let’s hope it’s not a seminal decision!
The decision in Clark v Macourt is a terrific example of the idea that the High Court is right because it’s final, not final because it's right.
The High Court has ruled that in quantifying the damage a person has suffered as a result of breach of contract, the actual loss suffered by the person is wholly and utterly irrelevant. Well the Court didn’t actually say that, but that is indeed the effect of the decision.
read more

Can a person be left out of a Will?

A look at some cases on estrangement
Children of any age and other eligible persons (as defined under the Succession Act 2006) have the right to make a claim on an estate for provision (or more than they were left under the Will) for their maintenance, education and advancement in life. This is known as a family provision claim.read more

The Short Lives Of Testamentary And Family Trusts

Trusts, which are colloquially known as “testamentary” or “family trusts” have one thing in common. That is that the Trustee can pick and choose from within a wide group of beneficiaries how to distribute the trust income and capital from time to time. This provides significant opportunity for a reduction of various taxes, protection from creditors and estate planning generally. However, unlike companies, such trusts cannot go on forever.read more

457 Laws Get Tough!

On 27 June 2013 the Government’s proposed changes to the subclass 457 visa program set out in the Migration Amendment (Temporary Sponsored Visa) Bill 2013 passed through the Senate. The Bill is currently awaiting royal assent and it is likely that the changes will take effect as a matter of priority.read more

Nomination Requirements and the Significant Investor Visa

The Significant Investor Visa arrangements require that applicants for the provisional 188 and subsequent 888 permanent residence visas have state nomination in place.read more

The 5 Million Dollar Visa!

Got a Spare 5 Million? Buy your way into Australia Today! On 24 November the Minister for Immigration & Citizenship rolled out the Significant Investor Provisional-to-Permanent Visa arrangements under the new Business Innovation and Investor Stream.read more

The National Business Name Register

Has your business registered its business name? ASIC is making life easier by cutting the red tape…read more

Government to get tough on hiring of illegal workers

Immigration Minister Chris Bowen announced the federal government will introduce new laws next year to crack down on the hiring of illegal workers.read more

Retailers and Manufacturers Beware!

New Warranty Rules Apply from 1 January 2012 - From 1 January 2012, new rules will govern the wording of warranties given by suppliers to consumers who purchase goods and services...read more

Retention of Title

Radical Changes on the Horizon - Does your business have a ‘retention of title’ clause in its trading terms? The days when a supplier could invoke a retention of title clause in an ...read more

A New Source of Director Liability

In a recent decision of the Supreme Court of Queensland, an often overlooked section of the Corporations Act (the “Act”) was invoked by a plaintiff to make a...read more